Understanding your paycheck deductions

The gap between your salary and your take-home pay isn't a mystery — it's a stack of specific deductions, each with its own rules. Here's what every line on your pay stub means and how to read it.

By StevenPG April 17, 2026 Reviewed May 21, 2025 6 min read

Educational content only — not financial, tax, or legal advice.

You’re told your salary is $80,000. Your first paycheck lands and, annualized, you’re clearing more like $55,000. That missing $25,000 isn’t going to some black hole — every dollar is itemized somewhere on your pay stub. Learning to read it takes 20 minutes and is worth more than any budgeting app.

The five layers of deductions

Your pay stub stacks deductions in a specific order, and that order matters because each layer determines what the next layer is calculated against.

Gross pay — your salary divided into pay periods, plus bonuses and overtime.
Pre-tax deductions — subtracted before federal income tax is calculated. Lowers taxable income.
Federal and state income taxes — calculated on what’s left after pre-tax deductions.
FICA taxes — Social Security and Medicare. Calculated on gross pay minus only a narrow set of pre-tax items.
Post-tax deductions — Roth 401(k), disability premiums, garnishments. Come out after taxes.

The result is your net pay — the amount hitting your bank account.

Pre-tax deductions (the good ones)

Pre-tax deductions lower your federal income tax bill right now. They include:

Traditional 401(k) contributions. Reduces federal and (usually) state income tax. Does NOT reduce FICA.
Traditional 403(b) / 457 / TSP contributions. Same mechanics for government, nonprofit, and education employees.
HSA contributions through payroll. Reduces federal, state, and FICA. The only triple-tax-advantaged move on a US pay stub.
FSA (health, dependent care). Reduces federal, state, and FICA. But balances are use-it-or-lose-it by year-end (with a small carryover).
Health, dental, vision insurance premiums (if employer-sponsored under a Section 125 plan — almost all are). Reduces federal, state, and FICA.
Commuter and parking benefits. Small, but tax-free up to the monthly IRS cap.

The “reduces FICA” footnote matters more than most people realize. A $200 health premium paid through payroll saves you ~7.65% in FICA on top of income tax. The same premium paid personally after tax doesn’t. That’s real money left on the table if you’re not running it through payroll.

Federal income tax withholding

This is calculated by your payroll system based on:

Your filing status (single, married, head of household) from your W-4
The number of dependents and other adjustments from your W-4
Your taxable wages (gross minus pre-tax deductions)

Your employer estimates your annual tax bill and withholds roughly 1/26th each biweekly check. The goal is to land close to your true tax liability when you file in April.

If you got a big refund last year, you over-withheld — you gave the government an interest-free loan. Increase your W-4 allowances to boost take-home pay.

If you owed a lot, you under-withheld. Reduce allowances or add extra per-paycheck withholding in step 4(c) of the W-4.

Neither outcome is inherently good or bad — a refund is just your own money returning to you late.

State and local income taxes

Nine states have no state income tax (AK, FL, NV, NH, SD, TN, TX, WA, WY). The rest withhold separately based on state-specific rules. A handful of cities — NYC, most of Ohio, parts of PA, many MD counties — add their own local withholding.

State tax rules don’t always match federal, and the gaps matter. California doesn’t let you exclude HSA contributions from state income tax. New Jersey taxes 401(k) contributions when you make them, not when you withdraw them. Read your stub carefully the first time you live in a new state.

FICA — the unavoidable 7.65%

FICA is the combination of Social Security (6.2%) and Medicare (1.45%), both paid by the employee. Your employer pays an identical 7.65% you never see on your stub. Self-employed people pay both halves — the “self-employment tax” is just FICA with no employer to split it.

Two footnotes:

Social Security wage base. In 2024, the 6.2% Social Security piece only applies to the first $168,600 of wages. Above that, it stops. High earners see their take-home pay jump sometime mid-December when the base is hit.
Additional Medicare tax. 0.9% extra on wages over $200,000 (single) or $250,000 (married filing jointly). Kicks in as a separate line on the stub once you cross the threshold.

FICA is calculated on gross pay minus health premiums, HSA contributions, and FSA contributions — but NOT minus 401(k). That’s why Roth and traditional 401(k) contributions produce the same FICA; they only differ in income-tax treatment.

Post-tax deductions

These come out after all taxes are calculated. Common items:

Roth 401(k) / Roth 403(b). No current tax break, but all growth and withdrawals are tax-free in retirement.
After-tax 401(k) contributions. The pathway for the mega backdoor Roth — only some plans offer it.
Life and disability insurance premiums beyond what the employer provides.
ESPP contributions. Money is set aside until the purchase date.
Garnishments (child support, tax levies, court-ordered). Legally mandated and non-negotiable.
Union dues.

Post-tax deductions don’t reduce your taxable wages, but they might produce future tax benefits (Roth, ESPP discount) or non-financial benefits. ESPP discount is often the single best benefit in a comp package — check yours if you have one.

Reading a real pay stub

A typical stub has columns for Current (this pay period) and YTD (year to date). Six numbers to understand on any stub:

Gross pay (current + YTD). Confirms your salary is calculating correctly.
Total pre-tax deductions. Includes 401(k), HSA, health premiums.
Taxable wages for federal income tax. Gross minus pre-tax deductions.
Taxable wages for FICA. Gross minus only the FICA-eligible subset.
Total tax withholdings. Federal + state + FICA + local.
Net pay. What actually hits your checking account.

The YTD column is useful for catching errors. If your employer forgot to withhold state tax for three months or miscalculated your 401(k) match, the YTD totals expose it.

The moves that change your take-home

In order of typical impact:

Capture the full 401(k) match. Missing the match is the most expensive pay-stub mistake.
Max the HSA if you’re on a high-deductible plan. Reduces all three taxes.
Max an FSA for predictable medical or dependent care spending. Reduces all three taxes.
Traditional vs. Roth 401(k). Traditional lowers today’s tax bill; Roth lowers future tax bills. The right choice depends on expected retirement vs. current tax rate.
Adjust W-4 to right-size withholding. Get your refund or bill close to zero.
Commuter benefits. Small but tax-free — a few hundred a year in a pricey city.

The paycheck calculator walks through how each lever feeds through gross to taxable to net. It’s the fastest way to see the actual dollar impact of a benefits election before you commit to a full year of it.